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The Blackstone Group L.P. (BX), UMH Properties, Inc (UMH): How to Play Single-Family Homes with REITs

Have you heard the news?  Single-family homes are the new investment of the day. Big players like private-equity king The Blackstone Group L.P. (NYSE:BX) are acquiring single family homes for rental income and appreciation. The Blackstone Group L.P. (NYSE:BX) is on a $100 million a week buying spree, having purchased $3.5 billion worth of American homes in just the past year.

For investors, the opportunities in single-family homes are huge. Spreads between borrowing costs (currently at record lows) and rental rates have never been so large, nor has housing been so cheap.

How to play single-family homes

Investors who want exposure to the purest of real estate plays in single family developments have two solid choices:

UMH Properties, Inc (NYSE:UMH)

UMH Properties, Inc (NYSE:UMH) is a small-time REIT, but it boasts big profits. This real estate investment trust is engaged in the financing and rental of manufactured homes, as well as the ground on which they sit. According to the company’s latest 10-K, it owns some 10,644 different rental sites on a total of 2,366 acres. The business is wildly profitable, with vacancies coming in at a relatively low rate of 20% across all its properties.

What makes this REIT so attractive is its pure-play position. UMH Properties, Inc (NYSE:UMH) is involved only in manufactured homes and land leases, with zero exposure to commercial or retail properties. Most impressively, the company generates a tremendous amount of revenue from each land lease in its developments – $391 on average.

UMH Properties, Inc (NYSE:UMH)’s 7% dividend yield looks more than secure. Dividend growth, which has a profound impact on REIT valuations, appears strong. UMH Properties, Inc (NYSE:UMH) increased is portfolio as measured in units by 11% in 2011 and 20% in 2012. What cash UMH Properties, Inc (NYSE:UMH) cannot put to work it invests in other REITs to avoid cash drag. The company has an $18.3 million preferred stock portfolio, as well as $39 million in equity securities of other REITs.

Silver Bay Realty Trust

This recent spin-off from Two Harbors Investment Corp (NYSE:TWO) is a true pure-play on single family homes. Silver Bay Realty Trust owns more than 3,400 single-family homes as of the latest annual report, and intends to use the proceeds of its recent IPO to acquire more homes in its established markets.

Silver Bay has excellent exposure to the most hard-hit real estate markets that have rebounded nicely since the end of the credit crunch. Some 29.4% of its units are internally managed in Phoenix, Arizona, while another 17.8% are located in Atlanta, Georgia, and are also internally managed. The company also has a substantial presence in Tampa, Florida (24%), North California (7.5%), Las Vegas, Nevada (6.3%), and Southern California (4.4%), where its units are managed by a third-party.

This REIT is in its earliest days–over 75% of its holdings were acquired in the last 12 months. From the latest filing, you can see a detailed breakdown of Silver Bay’s holdings, acquisition price, and rental rates:

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